There is no particularly good news for Bitcoin miners: the halving is coming, but the hashrate remains very high.
Mining is a competition in which those with higher hashrate earn more BTC, but the reward is fixed, and approximately every 4 years it is halved with the halving.
The problem is that a higher hashrate consumes more electricity, increasing costs: beyond a certain level, there is a risk of mining at a loss.
Bitcoin halving and the current hashrate level
The Bitcoin protocol provides that the miner who manages to validate a block is rewarded with some BTC.
Initially, this award was 50 BTC, and the protocol provides for it to be halved every 210,000 blocks.
So far there have been three halvings, and the next one, which will reduce the reward to 3.125 BTC, will occur exactly at block number 840,000.
Since block number 830,000 was mined over the weekend, there are now less than 10,000 blocks left until the next halving.
On average, it takes a little less than 10 minutes to mine a block, and since only one block can be mined at a time, it is estimated that the halving should occur around mid-April.
The halving of the prize
In reality, miners earn two types of income by mining the blocks of the Bitcoin blockchain.
The first one is the reward, which starting from April will be reduced to 3.125 BTC per block from the current 6.25.
The second one is the fees, which however vary over time. However, since the size in bytes of each block is limited, the number of transactions that miners can include in a block is limited, and this also limits the fees.
For example, block number 830,101 mined today allowed the miner to earn a total of only 0.145 BTC, and the previous one 0.235.
So generally not only are the fees much lower than the current reward, but they will also be lower compared to the new reward of 3.125 BTC that they will receive starting from the next halving.
Since Bitcoin miners only earn BTC, its market value also greatly affects their economic performance. Fortunately, at the moment it is high, but if it were to decrease, miners could have problems.
The problem of miners
The real problem with miners is the high electricity consumption.
In fact, mining is a competition in which, for each individual block, those who can rely on a very high hashrate are greatly favored. This, on one hand, leads many miners to pool their resources through mining pools, and on the other hand, results in very high energy consumption since more hashrate also means more electricity used.
At the moment the reward is halved, and in the absence of a significant increase in fees, all this could lead to major economic sustainability problems for many miners, especially if the price of BTC were to drop significantly.
In this case, the only solution would be to consume less, and the only way to do it would be to turn off less efficient machines, effectively reducing revenue opportunities as well.
It is not surprising, therefore, that recently the stock prices of Bitcoin mining companies have dropped in the stock market.
Taking as a reference the one with the highest market capitalization, namely MARA of Marathon Digital Holdings, after rising to $31 at the end of December, it then fell below $16 in January, when the price of BTC fell below $39,000. However, thanks to the rise in the price of BTC, it has risen to almost $24, but still remains well below the values at the end of 2023.
In other words, recently the stock performances of mining companies have been lower and more volatile than those of Bitcoin itself, to the point that MARA stock was even at $19 in July of last year, which is slightly below the current level and above the level of late January 2024.
Part of this problem could be contained by the fees generated by the Ordinals, which are a kind of NFT on the Bitcoin blockchain that have already significantly increased the fees paid by users to miners.
The relationship between hashrate and Bitcoin halving
All of this is exacerbated by a very high hashrate.
Just think that on February 3rd, which is just under ten days ago, the all-time daily record of almost 650 Eh/s was recorded.
Therefore, although in recent years increasingly efficient machines have been launched on the market, consumption is at its highest, excluding momentary consumption peaks during the 2021 bubble.
This will make it even more difficult for miners to bear the halving of the reward, to the point that those who do not have new super-efficient machines will probably have to stop mining, if they want to do it profitably, unless they have very low-cost electricity or the price of Bitcoin rises further.
To be honest, we can expect a reduction in hashrate after the halving, precisely because of the dynamics described above, but it may not necessarily be a collapse. In fact, nowadays the new super-efficient machines are very common, and this could mean a moderate reduction in hashrate due to the decommissioning of old and less powerful machines.